Chiming in with aeh and gabalyn. When DD was in grade 2, her teachers swore she could read, in two languages. In reality, she struggled mightily with a list of three-letter words - but faked it incredibly well with complex text. We spent grade 3 doing proper remediation, and it's been a lifesaver to her happiness, not just her schoolwork.

It takes extensive and expert testing to find the underlying problem in a child who can nonetheless read - our reading specialist almost laughed us out of the room after the first hour of our assessment, but eventually concurred that yes, it actually was dyslexia. Just not dyslexia like she had ever seen it before. There's a number of experiences and resources shared in the thread:
http://giftedissues.davidsongifted.org/BB/ubbthreads.php/topics/217055/Stealth_dyslexia.html

It's also worth knowing that there are questions about the usefulness of Reading Recovery for children with LDs (for example, see http://www.wrightslaw.com/info/read.rr.research.farrall.htm). Just because your son has been in this program without improvement doesn't mean that his reading isn't a problem, nor that it can't be improved.

Looking back through your previous post, you don't describe a child who is tuned out or can't be bothered with boring work. Rather, it sounds like your son is working hard, yet struggling constantly with a range of tasks that ought to be easy for him. It sounds very much like something - maybe several somethings - are in the way. If those 'somethings' are a problem now, they are likely to grow, rapidly and brutally, as he heads towards middle school, so don't let anyone convince you that's just the way he is and you just have live with it. He clearly has the ability to learn a lot and do it well, but needs help finding the right strategies to learn, and how to remediate and/ or accommodate the the blockages in his way.

Repeating a year will simply give him more of the wrong kind of teaching that didn't work the first time. He needs different (evidence based) remediation. It's also worth noting that research strongly supports placing a child according to their strengths, and then supporting their weaknesses. Curriculum that stretches them at the level of the intellectual ability is far, far more motivating to work through the pain. My two 2E kids, for example, will put forth supreme effort to battle through their LDs to work on a task that is exciting and challenging. But to complete make-work and tasks they could easily do years ago? Not so much.

So don't give up! Your son is capable of thriving, and you are doing a fantastic job of finding out what he needs to get there.